Fairport's Vargo high on consumers

Favors Lowe's, Target, Procter & Gamble

By

DavidB. Wilkerson

CLEVELAND (CBS.MW) -- To Fairport Growth and Income manager Keith Vargo, it's apparent that consumer confidence is on the rise -- and he plans to be ready when everybody else gets around to realizing it too.

"As far as the theme of the fund right now, I've been focusing on the cyclicals," Vargo said. "I've done a fair amount of weighting to the materials sector, producer durables, and continue to have some emphasis on the consumer [stocks], mainly consumer discretionary."

As of Tuesday, the $12.3 million fund
ROGIX
has posted a nearly 17 percent loss this year, compared to a 19 percent decline by its multi-cap peer group, according to Lipper. Over the last three years, its annualized loss is 7.6 percent, compared to 3.1 percent shed by its peers.

Vargo uses the Russell 1000 Value Index
RLV, +0.41%
as his benchmark and invests in well-established, name brand companies. He typically looks for dividend-paying stocks trading at below market multiples.

"That's not an absolute, but I'm generally trying to construct a portfolio that has that characteristic," Vargo said.

Home improvement retailer Lowe's Companies
LOW, -0.73%
he says, is benefiting from a number of encouraging trends.

"We just had retail sales come out for August, and that was the third month they came in stronger than expected. Auto sales were obviously strong, but outside of that, furniture and other home furnishings were strong..." Vargo noted. "In addition to that, home equity loans are up. A company like Lowe's would benefit from that." Shares of Lowe's stock closed 75 cents higher Wednesday to $44.81.

Another top retail name in the portfolio is Target Corp.
TGT, -0.58%
"It's not a Kmart, it's not a Wal-Mart, they don't have the cheapest items around, but they do provide a good basic supply of items," he said. Vargo expects Target to benefit from Kmart's troubles, as those stores continue to close. Kmart
KM
filed for Chapter 11 bankruptcy protection in January. Target shares finished 23 cents higher to $35.97.

Vargo also likes Procter & Gamble
PG, +1.04%
the No. 1 maker of household products. "With consumer staples, I'm also a little bit overweight in that sector, relative to the Russell universe," he explained. "The reason for that was to add sort of a safety net to the portfolio. To add some balance. Procter & Gamble's a great company. They keep revising up their numbers. I've owned that stock for a year-and-a-half to two years. It's done quite well for us." Shares added 4 cents to $92.10 Wednesday.

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